Testimony on the DISCLOSE Act for the House Admin. Committee

The DISCLOSE Act closes longstanding loopholes that have permitted veiled political actors to escape full transparency. We urge Congress to pass this legislation as quickly as possible in order to ensure the source of corporate money in the upcoming election is fully self-evident.

Introduction:

Citizens United granted corporations and unions a novel right to use general treasury funds to influence American elections. These new rights should be accompanied by commensurate responsibilities of full transparency.

“The Democracy Is Strengthened by Casting Light On Spending in Elections” Act (the DISCLOSE Act) provides this meaningful transparency. As illustrated below, the Act’s reporting and disclaimer provisions are necessary to prevent the corrupt use of money in American politics and to ensure that voters have enough information to cast informed votes at the polls. These provisions build on a century of federal disclosure laws seeking to reveal money in politics to the voting public.2 And, they stand on solid constitutional ground—similar disclosure laws have been upheld again and again, including by eight members of this Supreme Court in Citizens United.

For over 60 years—under restrictions imposed by Taft Hartley, Federal Election Campaign Act (FECA) and Bipartisan Campaign Reform Act (BCRA)—corporations and unions were barred from spending general treasury funds on elections. Instead, they used fully-transparent political action committees (PACs) to engage in election-related spending. Now, any union and any corporation in America, whether nonprofit or for profit, may spend freely in elections. With this increase in entrants into the political sphere, clear reporting requirements are crucial.

Similarly, history and current events have both demonstrated that American elections are too often besieged by political advertisements from unnamed sources, making it difficult for citizens to properly weigh these messages. This is particularly true when those advertisements take the form of 30 second attack ads where the source is only vaguely identified. As President Obama recently stated, “the American people also have the right to know when some group like ‘Citizens for a Better Future’ is actually funded entirely by ‘Corporations for Weaker Oversight.’”3

Below we describe how the DISCLOSE Act closes disclosure loopholes in current law. Next, we explain that the Supreme Court has repeatedly upheld laws similar to the DISCLOSE Act. We then illustrate the problems that the DISCLOSE Act is meant to address, including examples of covert spending at the state level. Finally, we urge Congress to pass additional reforms to address the problems created by Citizens United, including the Fair Elections Now Act, which would put in place small donor public financing for Congressional races, and the Shareholder Protection Act, which would require shareholder votes to authorize corporate political spending.

Part I. By Strengthening Reporting and Disclaimer Requirements for Campaign-Related Spending, the DISCLOSE Act Plugs Holes in Existing Law

As detailed more below, the flaws in the current federal reporting requirements are numerous. The DISCLOSE Act closes these loopholes, which could lead to limitless veiled corporate and union spending if left unaddressed. Experience from states where corporations were permitted to engage in unrestricted political spending before Citizens United illustrates why it is so critical to pass the DISCLOSE Act. State examples show that if the current federal loopholes remain open, corporations and unions will likely use them to make undisclosed expenditures.

A. Enhanced Reporting Requirements

Under the DISCLOSE Act, H.R. 5175, all covered organizations 4 must report all of their campaign-related spending to the Federal Election Commission (FEC). “Campaign-related spending” includes “independent expenditures” and “electioneering communications” as those terms are defined by the Act. The Act clarifies the definition of “independent expenditures” to include any communication that expressly advocates for the election or defeat of a clearly identified candidate as well as any communication that is the “functional equivalent of express advocacy.”5 The definition of “electioneering communication” is widened slightly by the Act. This term still covers only broadcast advertisements that refer to a clearly identified candidate, target the relevant electorate, and air soon before an election, but expands the reporting window to 120 days before a general election.6 Expanding these definitions is key to capturing the way modern political campaigns are run—often, ads lacking the classic “vote for” or “vote against” language begin to air many months before an election.

Under existing law, organizations must report their electioneering communications within 24 hours of spending or contracting to spend $10,000 or more for production or broadcasting costs within a calendar year of the election.7 Under the DISCLOSE Act, electioneering communications are subject to this same schedule but, as noted, the period for electioneering communications is expanded.

Under current law, individuals and committees report within 48 hours of spending $10,000 on independent expenditures until 20 days before an election. In the 20 days before an election, individuals and committees must report within 24 hours of spending $1,000 on independent expenditures. The DISCLOSE Act imposes a similar regime: at any time up to 20 days before an election, organizations must report their independent expenditures within 24 hours of spending $10,000 or more.8 After that date and until election day, organizations must report their independent expenditures of $1,000 or more within 24 hours.

In addition to disclosing their own campaign-related spending, organizations will be required to reveal the identities of their funders. Organizations are given a choice as to how they want to structure this disclosure. They can either (a) report all donors in the previous year of over $1,000 or $600 (depending on the type of campaign-related spending involved),9 or (b) set up a Campaign-Related Activity Account through which to fund their campaign-related spending. If an organization chooses this second option, it is only required to report donors of $1,000 or $600 (again, depending on the type of campaign-related spending involved) who donate specifically to the organization’s Campaign-Related Activity Account. Accordingly, if an organization exclusively receives and disburses campaign-related expenditures through its Campaign-Related Activity Account, it need not report the identities of those who donated to the organization’s general treasury. This closes a major loophole in current FEC reporting. As discussed in greater detail in Part III, present FEC rules do not require political advertisers to identify their funders unless a funder expressly earmarks his or her contribution.

The bill contains two provisions geared to prevent circumvention of the above-described disclosure requirements. First, if an organization transfers money to another entity for the purpose of engaging in campaign-related spending, that organization will be treated as if it engaged in campaign-related spending directly.10 Second, if an organization transfers $10,000 or more from its general treasury funds to its Campaign-Related Activity Account, the organization must then disclosure the identify of donors of unrestricted funds over $10,000 or $6,000 (depending on the type of campaign-related spending involved). This, of course, is necessary to prevent an organization from shielding political funders by simply moving money around.11 These requirements will be particularly important to close another loophole under current law—the use of trade associations, organized under 501(c)(6) of the tax code, to cloak donations from for profit business corporations. This trade association problem is explained more fully below.

If a donor specifies in writing that he or she does not want to fund any campaign-related spending, an organization is strictly prohibited from using his or her donation in that way. In such a case, that donor’s identity would not be revealed to the FEC, even if the organization chooses to use other general treasury funds for campaign-related spending. This provision protects donors who wish to give to nonprofits but do not want to fund political ads.12

Finally, any organization that submits regular, periodic reports to its shareholders, members or donors, must include information about any campaign-related spending during the period covered by the report. Specifically, the organization must disclose the date of the independent expenditure or electioneering communications, how much it cost, the name of identified candidates, and any transfer of funds to another organization for the purpose of campaign-related spending. In addition to including this information in periodic reports, an organization must post information detailing campaign-related expenditures on its website within 24 hours of reporting such to the FEC.13 This addresses the current lack of disclosure between companies and their shareholders which will be explained in Part III.

B. Enhanced Disclaimer Requirements

The Act also imposes enhanced disclaimer requirements on broadcast independent expenditures and on electioneering communications (which, by definition, are broadcast via radio or television). Specifically, the Act imposes a new “stand-by-your-ad” rule that requires the highest ranking official of an organization to announce his or her name and position and then expressly approve of the message. In addition, if the advertisement was substantially paid for by another person or organization, that funder must also “stand by the ad” by making a similar statement. Finally, an organization must list the top five funders whose donations paid for the advertisement. This should prevent corporations or unions from using a “sham” group to run political ads, and will inform the voting public of the major financial backers in one snapshot.

Part II. The DISCLOSE Act’s Disclosure Provisions are Constitutional

As explained above, the DISCLOSE Act imposes enhanced reporting and disclaimer requirements on business corporations, labor unions, and nonprofit organizations engaged in campaign-related spending. The Act thus ensures that those responsible for such expenditures—namely, the sponsor and those who fund the activity—are reported to the FEC and clearly identified to the public. As explained below, Supreme Court precedent leaves little doubt that the Act’s reporting and disclaimer requirements are constitutionally sound.

In Citizens United, this Supreme Court upheld the disclosure and disclaimer requirements imposed by BCRA by an eight to one vote.14 By so holding, the Court added to a long line of cases approving laws requiring the disclosure of money in federal elections.15

The Court’s first significant examination of federal disclosure laws occurred in 1934 in the case of Burroughs v. United States. There, the Court upheld the reporting requirements imposed by the Federal Corrupt Practices Act of 1925. In upholding this law, the Court emphasized that disclosure of campaign spending serves crucial anti-corruption interests:

To say that Congress is without power to pass appropriate legislation to safeguard such an election from the improper use of money to influence the result is to deny to the nation in a vital particular the power of self-protection. Congress, undoubtedly, possesses that power, as it possesses every other power essential to preserve the departments and institutions of the general government from impairment or destruction, whether threatened by force or by corruption.16

In the 1976 case of Buckley v. Valeo, the Court again embraced robust disclosure—this time, by validating the extensive reporting requirements imposed by FECA.17 The Buckley Court recognized that FECA’s disclosure provisions could burden individual rights and might even deter some individuals from engaging in political activity. Despite the possibility that disclosure might curb some political activity, the Court concluded that disclosure is generally “the least restrictive means of curbing the evils of campaign ignorance and corruption....”18

The Buckley Court also found that disclosure serves three key governmental interests, which typically justify any burden imposed on political rights:

(1) “disclosure provides the electorate with information as to where political campaign money comes from and how it is spent”;

(2) “disclosure requirements deter actual corruption and avoid the appearance of corruption by exposing large contributions and expenditures to the light of publicity;” and

(3) “disclosure requirements are an essential means of gathering the data necessary to detect violations” of other campaign finance regulations. 19

In 2003, the Court affirmed this triumvirate of state interests in McConnell v. FEC when it upheld BCRA’s electioneering communications reporting provisions by a vote of eight to one.20 The McConnell Court—following the lead of the district court in the case—paid particular attention to voters’ informational interest in knowing who funds political ads so that they can make informed decisions at the ballot box. The Court was troubled by evidence that independent spenders regularly shield their true identities while trying to influence federal elections:

BCRA’s disclosure provisions require [] organizations to reveal their identities so that the public is able to identify the source of the funding behind broadcast advertisements influencing certain elections.... Curiously, Plaintiffs want to preserve the ability to run these advertisements while hiding behind dubious and misleading names like: “The Coalition-Americans Working for Real Change” (funded by business organizations opposed to organized labor), “Citizens for Better Medicare” (funded by the pharmaceutical industry), “Republicans for Clean Air” (funded by brothers Charles and Sam Wyly). Given these tactics, Plaintiffs never satisfactorily answer the question of how “uninhibited, robust, and wide-open” speech can occur when organizations hide themselves from the scrutiny of the voting public....21

Given this line of precedent, it is not surprising that the Supreme Court in Citizens United reaffirmed the constitutionality of BCRA’s reporting and disclaimer provisions for electioneering communications. In so ruling, the Court reiterated that such disclosure requirements impose no ceiling on campaign-related activities and prevent no one from speaking.22 Disclaimers, the Court explained, play a particularly important role in keeping voters fully informed. By clearly identifying who is paying for political advertisements, BCRA’s disclaimer requirements ensure that voters are in the best position to evaluate competing arguments in the months before election day.23

Clarifying an unsettled area of law, 24Citizens United also specified that disclosure requirements may be imposed in contexts where other regulation would be impermissible:

The Court has explained that disclosure is a less restrictive alternative to more comprehensive regulations of speech....In Buckley, the Court upheld a disclosure requirement for independent expenditures even though it invalidated a provision that imposed a ceiling on those expenditures. In McConnell, three Justices who would have found [the corporate expenditure ban] to be unconstitutional nonetheless voted to uphold BCRA’s disclosure and disclaimer requirements. And the Court has upheld registration and disclosure requirements on lobbyists, even though Congress has no power to ban lobbying itself.25

By expressly approving of disclosure in connection with a variety of campaign-related expenditures, the Citizens United Court thus sanctioned expansive disclosure. It is therefore likely find the DISCLOSE Act’s disclosure provisions constitutional as well.

Part III. The DISCLOSE Act Will Limit Current “Black Box” Political Spending

The DISCLOSE Act is designed to address several loopholes in the current federal disclosure regime that allow political spenders to hide their true identity and shield exactly who is funding independent political spending. Currently, business corporations and other organizations can spend through intermediaries such as confidential trade associations. If the resulting advertisements are not funded through a PAC, the FEC’s lax reporting requirements rarely capture the underlying donors. Similarly, current disclaimer requirements do not always catch who is paying for political advertisements. Moreover, for shareholders and investors, there is a lack of transparency surrounding corporate political activity.

A. Voters, Shareholders, and Investors in the Dark

Today voters and shareholders often know very little about the beneficiaries of corporate political expenditures.26 This matter is particularly problematic for publicly traded companies which are currently under no legal duty to disclose political spending directly to shareholders.27 Accordingly, as one legal scholar has explained, “[p]olitical contributions are generally not disclosed to the board or shareholders, nor are political expenditures generally subject to oversight as part of a corporation’s internal controls.”28 An average shareholder thus has little hope of fully understanding the scope of the companies’ political expenditures.29 Even worse, shareholders may unwittingly fund political spending at odds with their own political philosophies.30

More robust disclosure from corporate spenders is needed to remedy this lack of information between a corporation, its shareholders, and the voting public. Shareholders need periodic disclosure of where corporate money is being spent during elections, including the names of candidates supported or opposed, party affiliation and office sought and it should be reported directly to shareholders and members. And, this is precisely what Section 327 of the DISCLOSE Act would do.

B. Holes in FEC Reporting

1. Disclosure Holes

Even before Citizens United, a small class of ideological non-profits spent in federal elections under the “MCFL exemption.”31 Since 1986, MCFL 501(c)(4)s—called “Qualified Nonprofit Corporations” (QNCs) by the FEC—could already use general treasury funds to pay for independent expenditures and electioneering communications in federal elections. But there was a major gap in what was disclosed: the FEC’s forms only required MCFLs to report earmarked contributions.[32] In other words, so long as a donor does not earmark the donation for the ad, that donor remains anonymous. [33]

Nonprofit organizations have made significant amounts of independent expenditures in federal races without ever having to disclose the identity of their funders. For example, in 2008, the NRA and the Defenders of Wildlife, both 501(c)(4)s, spent $17 million and $3 million respectively on independent expenditures advocating for the election or defeat of federal candidates.[34] The current disclosure regime, however, does not require disclosure of the sources of the funds used to pay for such expenditures—as a result, the funders of these ads remain unknown.

Similarly, the Committee for Truth in Politics, a 501(c)(4) ironically dedicated to “honesty in government,” aired deceptive television advertisements attacking financial reform and Senators Max Baucus and Jon Tester just this year. The Committee for Truth in Politics has refused to make the minimal disclosures required by current law. [35] But even if it had complied with existing law, it still would not have to identify the source of its funds.

Federal disclosure requirements need to be strengthened so that those who fund these ads are actually disclosed to the public. Section 211 of the DISCLOSE Act ends this anonymous donor problem by requiring, for the first time, that all donors over certain dollar thresholds be named in public reports to the FEC.

2. Disclaimer Flaws

Currently, federal disclaimers only require identification of the sponsoring organization. Too often, however, this organizational name is that of a benign-sounding shell entity created solely for the election. Use of front groups veil that underlying funders are actually business corporations with specific, profit-driven agendas. Examples from the states illustrate this problem.

In a recent Colorado ballot measure election, for example, a group called “Littleton Neighbors Voting No” spent $170,000 to defeat a zoning restriction that would have prevented a new Wal-Mart. When the disclosure reports for these groups were filed, it was revealed that “Littleton Neighbors” was exclusively funded by Wal-Mart, and not a grass roots organization. The DISCLOSE Act’s top donor disclaimer approach would have made Wal-Mart’s participation evident on the face of the advertisements and empowered voters with the information necessary to make an informed decision.

The top five donor disclaimer would also have helped identify that in Florida’s 2006 gubernatorial primary, the US Sugar Corporation funneled approximately $1 million in independent expenditures through deceptively-named fronts—“Florida’s Working Families” and “The Coalition for Justice and Equality.”[36] US Sugar was the largest contributor to each of these committees, providing $700,000 of the $1 million spent by the Coalition for Justice and Equality and $200,000 of Florida’s Working Families’ $275,000 budget.[37] These expenditures were all made in support of Candidate Rod Smith and totaled 30% of the expenditures that candidate Smith spent in the primary.[38] Had Florida required disclaimers analogous to the DISCLOSE Act’s major donor disclaimers, the public would have been well aware of US Sugar’s leading role in these seemingly grassroots committees, thereby providing valuable voter information and allowing detection of any quid pro quo arrangements.

Similar ads from veiled political actors could be seen in the federal sphere as soon the midterm elections. This is yet another reason that the DISCLOSE Act is necessary.

C. Hidden Spending through Trade Associations

The DISCLOSE Act will also address a very serious problem that has allowed trade associations to shield corporate political spending from the public eye. Trade associations organized under section 501(c)(6) of Internal Revenue Code are currently not required to divulge the identity of those funding their political activities; similarly, most corporations do not reveal how much they have given to trade associations.[39] Thus, corporations have long made anonymous contributions to trade associations, allowing them to engage in political spending for corporate interests.[40] The effects are severely troubling:

The use of trade associations as conduits for political spending allows companies to give political money and then claim they didn’t know that it ended up supporting organizations and candidates with which they may not want to be publicly associated. It also prevents investors and directors from learning about indirect corporate political spending and being able to evaluate the risks that trade association spending creates for shareholder value.[41]

Trade associations pose a particularly troublesome problem after Citizens United. As noted above, federal law pre-Citizens United required trade associations to pay for express advocacy through a PAC.[42] Now, trade associations can spend directly out of their corporate treasuries which, in turn, can be funded by the corporate treasuries of their members. [43] Thus, trade associations hold the potential for an end-run around disclosure of unrestricted corporate election-related spending.

The threat of secretive trade association spending is not a theoretical fear. This is already a demonstrated problem in several states. For instance, in a 2000 Michigan senate race, Microsoft used the US Chamber of Commerce to fund $250,000 in attack ads against a candidate. Microsoft’s involvement in the election would have gone unreported but for the efforts of an investigative journalist who exposed the expenditure.[44] Unfortunately, the Chamber has been allowed to keep the underlying contributing corporations secret. Consequently, “the public will never know who is funding the Chamber’s attack ads and get-out-the-vote efforts because the Chamber … is not required to itemize its political activities.”[45]

Moreover, as the Chamber acts as a black box cloaking the political spending of its corporate members, the Chamber itself can cloak its role in politics by hiding behind other groups. A recent example of this was revealed in the case Voters Education Committee v. Washington State Public Disclosure Commission.[46] As this litigation unearthed, the Chamber had given $1.5 million dollars to a group called the “Voters Education Committee,” which spent the money on political television advertisements in a state attorney general election without disclosing information about its contributions and expenditures.[47] The DISCLOSE Act’s transfer provisions would have made spending like this transparent in the federal context.

Finally, there is already evidence that these covert spending examples from the states may repeat themselves in federal elections as soon as this Fall. Just a few weeks after Citizens United, one of the country’s largest law firms advised its corporate clients that trade organizations could provide “sufficient cover” from disclosure.[48] The press has also reported that the Chamber plans to spend at least $50 million on political races and related activities in 2010—a 40% increase from 2008. It expects to focus on about 10 Senate races and up to 40 House districts where it will target vulnerable Democrats with campaign advertisements, among other efforts.[49] Since corporate contributions to federal candidates are banned, it is almost certain a significant portion of this money will be spent on independent expenditures. The shear magnitude of the Chamber’s spending capabilities makes disclosure of the Chamber’s funders essential, especially when that spending is compared to average expenditures by candidates. (In 2008, winning Senate candidates spent $7.5 million on average, and winning house candidates spent $1.4 million—far less than the Chamber’s capabilities.[50])

Indeed, some veiled spending by trade organizations in the 2010 elections is already underway. Americans for Job Security, a 501(c)(6), has reportedly spent over $1 million on advertisements attacking a candidate in the Arkansas democratic congressional primary.[51] Although Americans for Job Security need not disclose the identity of its contributors under current law, the targeted candidate has filed a complaint with the FEC demanding that the underlying donors be identified.[52] The DISCLOSE Act would eliminate this black box spending by requiring trade associations who fund electioneering communications and independent expenditures to name their donors over a certain dollar threshold.

Part IV. Beyond Disclosure to Full Reform

The public anger surrounding Citizens United[53] provides Congress with a ripe opportunity to strengthen federal disclosure and disclaimer provisions to ensure that voters are fully aware of who is trying to sway their vote in national elections. There is no doubt that the DISCLOSE Act will improve our system of funding elections—Congress should certainly pass it without hesitation. By itself, however, it cannot remedy our democracy’s deeper malfunctions. To put voters back in the center of our democratic process, additional reforms are necessary.

First, as we have detailed in previous testimony before this Committee, Congress has the authority to modify the securities law to address the problem of corporate managers using other people’s money in politics. [54] Congress should provide shareholders in publicly traded companies the right to vote on corporate political expenditures and require that corporate boards authorize particularly large political expenditures. The Shareholder Protection Act, H.R. 4790, would provide these safeguards for shareholders who are presently unwittingly footing the bill for corporate political spending.

Furthermore, and on a more fundamental level, Congress should embrace small donor public financing like that proposed by the Fair Elections Now Act (FENA), H.R. 1826. FENA would provide qualified candidates an initial grant, plus a four-to-one match of individual contributions of up to $100. The multiple matching funds component would not only amplify the influence of small-donor citizens, it would encourage candidates to seek contributions from a broad, and presumably more diverse, constituent base.

We encourage this Committee to hold hearings on FENA as soon as possible so that members and the public can learn more about this vital reform measure. Moreover, Congress should push FENA to the front of its legislative agenda—our democracy is in urgent need of a systemic reform to improve the dynamics of campaign fundraising and cannot afford to wait any longer.

Conclusion

The DISCLOSE Act closes longstanding loopholes that have permitted veiled political actors to escape full transparency. We urge Congress to pass this legislation as quickly as possible in order to ensure the source of corporate money in the upcoming election is fully self-evident.

Appendix A – History of Federal Disclosure Laws

Corporate contributions were outlawed in 1907 to prevent excessive corporate influence during the Gilded Age. As illustrated below, corporate political spending was restricted from then on, until Citizens United turned history on its head.

A.Early Disclosure Laws

In the words of Professor Frank Pasquale,

The story of campaign finance reform properly begins in the “Gilded Age,” when a variety of political reform movements began to question the growing influence of trusts and other organized economic interests within the American democratic system. Political developments of this era alarmed many. Graft and corruption had reached astonishing levels.[55]

Or, as satirist Mark Twain put it in 1873, “I think I can say, and say with pride that we have some legislatures that bring higher prices than any in the world.”[56]

From that time on, corporations have used their enormous coffers to wield significant control over government. Since as early as 1890, reports surfaced that the railroad industry in Pennsylvania wielded so much influence that it “dictated who shall represent the state in the United States Senate, selects its own candidates for Governor.” [57] A newspaper even reported that the employees of railroad companies would often speak and sometimes preside over legislative sessions, despite the fact that they were not elected officials. Referring to William Latta, then General Agent of the Pennsylvania Railroad, The New York Times reported that

[Latta] for many years worked openly and above board as the recognized representative of the Pennsylvania Road and has a seat in the select council chamber at its regular meetings every Thursday, and uses his privilege with so much freedom that he calls the pages, sends notes to the members, and simply indicates to them what he wants done and directs what they shall do.[58]

Despite the troubling, outsized influence corporations yielded, it took decades and the New York Life Insurance Scandal of 1905 before Congress would step in to try to address the problem through federal contribution limits and disclosure laws.

The problem of veiled corporate political expenditures dominated the national consciousness in 1905.[59] This was the year when the public discovered that the biggest insurance companies in the country had given vast sums of money to the Republican Party using policy holder money, including for the 1904 re-election of Theodore Roosevelt.[60] Besides the problem of using other people’s money in politics, the public was outraged when they learned that this spending had been done covertly as a series of secret backroom deals.

Congress’ response was two-fold. First, it passed the Tillman Act in 1907, prohibiting corporations from making contributions to candidates for federal office.[61] Shortly thereafter, Congress passed the Publicity Act of 1910, the first federal law to require public disclosure of financial spending by political parties.[62] This law required political committees to disclose the names of all contributors of $100 or more and identification of recipients of expenditures of $10 or more was also required.[63] In 1911, the Act was revised to include conventions and primary campaigns.[64]

Following the Teapot Dome scandal, a pay-to-play scheme where oil companies gave payoffs to federal officials in exchange for oil leases, the federal disclosure requirements were expanded in the Federal Corrupt Practices Act of 1925.[65] That Act required political committees to report total contributions and expenditures, including the names and addresses of contributors of $100 or more and recipients of $10 or more in a calendar year.[66] The 1925 Act was largely a dead letter because of lack of enforcement.[67]

B. FECA

The Federal Election Campaign Act of 1971 (“FECA 71”) replaced the 1925 law.[68] It was signed into law by Republican President Richard Nixon who would soon be entangled in its mechanisms.[69] FECA 71 established procedures for monitoring and auditing campaign funds and applied to both primary and general elections.

One of the many unseemly revelations from the investigation of Nixon’s Watergate scandal was the extent of corporate political involvement, despite the corporate contribution ban:

[O]ne of the most disturbing findings was the large number of illegal corporate campaign contributions. Nineteen companies pleaded guilty to charges by the Watergate special prosecutor that they had violated a federal criminal statue barring corporations from contributing their funds to candidates for federal office.[70]

Moreover, the Watergate investigations revealed that corporations were not properly disclosing how their money was being spent, leaving investors and voters in the dark. For example, oil companies were caught giving large, illegal and secretive contributions to Nixon’s Committee to Re-Elect the President (CREEP).[71] But the oil companies were hardly unique. Other industries also gave covert and illegal contributions too.[72]

Post-Watergate, FECA was amended in 1974 to address these problems as well as others. Under FECA 74, corporations and labor unions were prohibited from using their general treasury funds to “make a contribution or expenditure in connection with any election to any political office.”[73] FECA 74 also established a comprehensive disclosure regime, requiring that contributions to candidates and political committees by fully disclosed and that independent spender disclose money spent on express advocacy.[74] Finally, the law created the Federal Election Commission (FEC) as an independent agency with the authority to administer and enforce campaign finance laws.

C. BCRA

While corporate bans were in place in the 1990s, corporations found two loopholes to insert their money into the electoral process. One was by giving soft money donations to political parties. Another tactic was funding sham issue ads—ads which purport to be about an issue but attack or praise a candidate for federal office right before his or her election. Funders of these sham ads often hid behind fake or misleading names.[75]

In spite of these problems, it took the implosion and bankruptcy of Enron, a huge campaign contributor to both political parties, before BCRA was finally passed after years of attempts.76 BCRA closed both the soft money and the sham issue ad loopholes. Of particular relevance here, BCRA created regulations for electioneering communications, including a comprehensive disclosure regime for such communications. As explained above, these provisions were upheld by the Court in McConnell and Citizens United eight to one.

As this historical review shows, there have been long cycles of grave scandals followed by reform efforts. Congress need not wait for a crisis, however, before it acts. Instead, given what we have learned from the past, Congress should set reasonable disclosure rules now so that the next scandal is prevented or mitigated.

1 This testimony is the product of the collaborative efforts of several lawyers at the Brennan Center including Susan Liss, Democracy Program Director; Ciara Torres-Spelliscy, Counsel; Angela Migally, Counsel; and Mimi Marziani, Katz Fellow and Counsel.

2 A full discussion of the history of federal campaign finance disclosure laws is set forth in Appendix A.